Sunday, June 24, 2012

Keep tugging on those bootstraps, Rachel.

The MSNBC "Lean Forward" commercials with Rachel Maddow extolling the example of Hoover Dam and other giant government projects as the way to revitalize the economy always set me to head-scratching.

I mean, I understand that putting a bunch of people to work on a government project would increase the amount of people with jobs, and the theoretical idea is that more people having jobs would pump money out into the economy. And more people working would raise the tax revenues of the country, too, right?

Except that if these newly employed people are newly employed by the government, then the taxes they're paying are coming out of salaries that came from tax money in the first place, and no matter how quickly you scoop buckets of water from one end of the pool and dump them into the other, the pool isn't going to get any deeper.

For every person getting paid by taxes, somebody, or more accurately several somebodies, has to pay those taxes in the first place, or you're just playing with more Monopoly money.

Well, the question is whether these projects would increase productivity or decrease it. It occurs to me that the Hoover Dam was constructed under relatively lean government wages, and when the workers tried to strike for raised salaries ruthless terminations were prepared. Hilarious!

By contrast, WWII increased productivity not because all those tanks were so gosh darn economically valuable, but because of an austerity regime that would make Stalin say "hey, lighten up."It's the same reason Krugman's howlingly stupid idea to fake an alien invasion is a textbook illustration of all the flaws with Keynesianism.

There's about a hundred reasons that "clap harder" stimulus spending won't work, and I suppose we're about to find out what all of them are.

The thinking is that there is some multiplier N where $ x N = change in GDP. They think that if N > 1.0 then the economy actually grows from the dumping of money into the project.

The problem is that the more that these "stimulus" projects are studied, the more that economists concluded that N for them is less than 1.0 - in other words, the stimulus actually reduces economic growth long term.

The problem with Government spending is they have to take the money from somebody who made a profit in the first place (producer) to give it to somebody who did not make a profit on their own (non producer). Punish winners and reward losers long enough and pretty soon Rachael Maddow gets a TV show.

You're essentially saying that government cannot run a profitable business. Which, notwithstanding the failure of US gov't in managing a brothel hasn't been proven to be true universally.

What about the issues of the long-term?

Federal highway system is beneficial. Have you heard of a company that has the money and the staying power to fund a 20 year infrastructure project?

Bear in mind that a small stretch of highway is not as useful as all of it. The more it connects, the more useful it is.

You can't build it 'progressively', bit by bit, expecting to fund some part of it from the proceeds.

What about projects that are beneficial, but not in a way that can be established in financial terms? Which public company, oriented on short-term profits is likely to start with something like that? Wouldn't they have a shareholder revolt after three unprofitable years?

Well, as I undeerstand it, you need to seperate John Maynard from the modern Keynesians. For one thing, JMK apparently wasn't concerned with raising tax revenues, but just with motivating people to start investing more. He did not envision permanent programs, but figured they would come to an end once the economy improved enough--which might not end the Ponzi scheme, but would at least bring back down to normal levels.

He was thinking of government spending as a sort of PTN--give the patient all the nutrients and proteins and stuff by IV that their digestive system couldn't take, until the body healed and became strong enough that they could eat on their own. Of course, this ignores the fact that there are important differences between the human body and the national economy.

Perhaps there's an even deeper underlying reason for those commercials. I can think of at least one occasion where you hear "lean forward", as the doc snaps on the rubber glove. Wanna bet the Warden in the White House can think of others?

At the fringes, there will be favorable effects outside of the primary loop-people who work at the limestone quarries that supply the cement plant will buy things that someone else, sooner or later, will make. The primary loop approaches the Smithian analysis of government jobs as non-productive, since the product doesn't participate in further economic activity. This would be true if the dam just sat there, but then it makes irrigation and power available where little or none were before, so there is an ongoing economic effect for the better. Economics is *hard* (whine). The short of it is that government should be the employer of last resort, not first.

re AC 3:28, "Federal highway system is beneficial. Have you heard of a company that has the money and the staying power to fund a 20 year infrastructure project?" Yeah, just look at the Kansas Turnpike - no federal dollars needed, it's self-sustaining without tax dollars, and took only 3 years to build.

Want some examples of private companies doing big things to change the world? Just look at Microsoft, Apple, Intel, or if you prefer - Virgin Galactic. There are very few things that a government can have built that couldn't be built cheaper and faster by private investors - if government would just get out of the way.

"The short of it is that government should be the employer of last resort, not first."

Government employment is an expense. Sometimes it's an investment (see "dam" above). It does nothing for our country's GDP. It is a terribly inefficient investment because it's administered by a terribly inefficient fed bureaucrocacy.

The few dollars that trickle into the non-fed economy are like gold. They actually produce value.

Note the amount of legally avoided taxes: 1 trillion per year up from 520 billion in 1985...

It is uncanny that a country of such means cannot find the money to maintain infrastructure. You can skimp on that for some time, but when it starts failing it's too late.. and without infrastructure, trade can't work.

Here is what Economist has found out:http://www.economist.com/node/18620944

Specifically:Infrastructure spending:5% GDP in Europe2.4% in the US. 9%: Japan

It all depends on whether Rachel wants to "create jobs" or lower unemployment. Her hero, FDR, had the answer for the latter problem, but not really the first as so many have explained in previous comments.

In 1940, the GDP for the United States was actually better than what it was for the country in 1928 prior to the stock market crash, but unemployment was still over 20%. (And this was males only, they didn't count women in the figures back then.)

Prior to Pearl Harbor and by the middle of 1941, the national unemployment rate was under 8%. What happened?

Roosevelt invoked the draft and immediately the unemployment problem disappeared, but soon the entire economy was being micro-managed due to rationing of all vital goods.

It worked. It forced the population to 'save' because there was nothing to spend it on anyway....Well, other than the typical wine, women and song.

I was taught in college that that pent up demand created through rationing is what powered the prosperity of the late 1940's and early 1950's.

In any event, I wonder if Rachel will be the first to volunteer for the draft?...

perlhaqr--not just eminent domain but loads and loads of corruption at both state and federal level. I've read that there was not a single extensive rail line built in the US during the 19th century that did not involve finagling and often outright corruption with state legislatures and Congress (see Credit Mobilier). Apparently Rand's description of how Taggart Railroad was built without government involvement has no actual parallel in historical fact.

There was, btw, a lawyer/politician from Illinois in the mid 19th century who made his money in representing railroads in court, although he apparently was not involved in any of the corruption. You probably heard of him--Abraham Lincoln.

It is possible for government spending on infrastructure to produce a net increase in wealth. That is not usually the way to bet, but it is possible. One problem is that it is very hard to measure the value of public projects because they are insulated from market based feedback.

Private capital investments are easier to evaluate because they are embedded in a market price system. If the project increases net wealth the company makes money. If the project costs more than it is worth, the company will lose money on it. Companies try to only do the projects that will make money, but they don't always guess right.

When government tries to dump money into random projects and activities, most of the money goes into money losing, wealth shrinking activities. When the private economy can't increase wealth faster than the government destroys it, you get economic decline as we have seen for the last several years.

"What I see is that US has been skimping on infrastructure maintenance even during the boom years of the Clinton era."

In other words, you don't have an example.

"Note that somehow, income taxes from corporations amounted to 7% of GDP in 1945, yet are merely 1.2% of GDP."

Find this via the Obamabot's website? Not exactly prolific, is he? Hasn't he written anything lately about the current administration's solutions?/sarc

Tax rates for US corporations are consistently among the highest in the world. But, of course, you don't understand how that really impacts the costs to consumers who purchase goods and services from those corporations.

Nor do you understand how stifling and expensive it is for corporations which suffer bureaucratic regulations run amok.

When they are promulgated by ideological stooges hired by sociofascists whose business acumen can be measured in micrograms, the atmosphere is positively poisonous.

If you spend your time collecting agitprop, you're not ever going to cure your economic ignorance.

"Here is what Economist has found out: ..."

Must be of great interest to the EU governments of Greece, Spain, Italy and France. Higher taxes solve everything, huh?

AC, what amuses me about your examples is how little you understand them. Your claim that Japan's been spending 9% on "infrastructure" tells me something different than it tells you. It tells me that 9% is too much, because Japan's GDP growth rate has been abyssmal for a long time.

But we don't need to look that far back, just look at the stimulus and the shovel ready projects and see how well that worked out.

GDP is a joke of a measure for the health of an economy, as the FED can print money push it into the economy and inflate the number.

Take out the deficit spending Fed & State, facter in M3 (Real Dollars) real inflation/deflation. Facter in the valocity of that money supply, taking into account how much is being held over seas. Factor in trade.

And you might get a clearer picture of how fckeud we really are.

As Mark Twain once said, "There are three kinds of lies: lies, damn lies and statistics."

There Is a big problem focusing on GDP. If the government digs a whole and fills it in the spending for that will add to GDP. If it spends the same amount on the Hoover dam the GDP will look the same. nowhere in one case they've created nothing of value in the other case great wealth was created.

If government projects are to be of any real value they need to create wealth. DARPA Internet technology - wealth, cash for clunkers - destroyer of wealth.

They were built on unclaimed land ( well, except for those pesky natives ).

Railroads were given large grants to encourage them to build these railroads ... ever other section was left unclaimed so settlers could still stake out homesteads.

This worked. Railroads got built. Land got developed. The only thing the government had to do was acknowledge the land claims of the railroads builders, whose efforts made those parcels valuable, instead of being remote wasteland.

At least back in the days of the Hoover Dam and the TVA, there was something to show for your waste tax dollars at the end of the day. Not any more.

Mark Steyn had a great article on the subject a few days ago.

"Obama can urge us all he wants to band together because when we dream big dreams there’s no limit to what Big Government can accomplish. But these days we can’t build a new Hoover Dam, only an attractive new corner office for the assistant deputy assistant deputy assistant secretary to the secretary of deputy assistants at the Department of Bureaucratic Sclerosis, and she’ll be happy to issue a compliance order that the Hoover Dam’s mandatory fish ladders are non-wheelchair-accessible, and so the whole joint needs to close."

The problem with looking at what we have now and saying "it's beneficial" is that it fails to account for cost, both in terms of what we overpaid for it (and government always overpays), but also in terms of the "unseen"; what might have been done with that wealth had it been left in the hands of its creators?

The moon missions in the 1960's were "beneficial", but if we'd simply waited a generation instead of having been spooked into doing it with 1960's tech by the Russians -- if we were just now going for it -- it would have been far cheaper due to better tech, we'd have been able to do much more, and it would possibly within the reach of someone like Burt Rutan (with a *lot* of backing.)

There was a scheme afoot to use government dollars to build "aerodromes", floating platforms every few hundred miles along the North Atlantic, to facilitate air travel to Europe in the day when everyone thought that aircraft would never fly further than four hundred miles at a step. Fortunately, airplane tech advanced faster than government in those days, and the money didn't end up wasted (talk about "sunk costs"!)

It's worth noting, re: government projects: I attended the opening of the new Hoover Dam bypass bridge when it opened in October 2010. There was a timeline on the one wall showing the history of its "construction": about forty-five years of government bureaucratic crap followed by six years of actual construction. I really should have shot a video of that.

Also another fact the building of Hover Dam was never intended as make work project. Congress authorized the building of it in 1928. At the hight of the roaring 20's. The early site surveys and planing was performed in the early 20's. It just happend to be built between 1930 to 35 at a cost of around 50 million dollars.

Yes, lot of newly out of work workers did flock to the project hoping for work, and the government took advantage of the situation for good PR.

Just some historical perspective and context that was sorely lacking and much needed.

"Except that if these newly employed people are newly employed by the government, then the taxes they're paying are coming out of salaries that came from tax money in the first place, and no matter how quickly you scoop buckets of water from one end of the pool and dump them into the other, the pool isn't going to get any deeper."

Really? Not according to the 2007 Census of Governments. According to it (and to a few other, readily available and RELIABLE sources online; I can provide links here, but why bother?) the total population of the US was 299,398,000. The total US labor force in 2007 was 153,213,000.

Now the numbers get a little muddled, even by the census bureau. But the total number of ALL Government employees SEEMS to be 43,500,261 for 2007. That includes all full and part time Fed and state employees, all active US military, the USPS, and all reserve military personnel. Basically, everyone getting a check from "the Man". There's some double dipping in these numbers, of course, but no more than a couple hundred thousand.

So the numbers works out to be 14.5% of the entire US population, and roughly 30% of the entire US work force being directly employed by government. Turn to your left, and then torn to the right. One of those people is getting a check from The Man. Look at a fourth person, and they're being supported by The Man's check by being a dependent of the employee.

Make 30% of the labor force unemployed overnight, making roughly HALF of the population destitute, homeless, and desperate, and see just how well the country does without all of those "unproductive, tax-stealing, wealth-non-creating" jobs.

You could have saved yourself a bunch of keystrokes by saying "I don't understand what you are trying to say, so I'll just argue against one of my favorite straw men. And then call you a 'Galtist'. QED."

See how many paragraphs that lops off your post while conveying exactly the same meaning? :)